Earthstone Scoops Permian Rival Novo for $1.5 Billion
A concurrent deal to sell off some of the acquired assets to Northern Oil and Gas will effectively lower the acquisition cost to $1 billion.
Permian player Earthstone Energy is acquiring Novo Oil & Gas Holdings LLC, a private-equity-backed Delaware Basin-focused producer for $1.5 billion. Concurrently, Earthstone will flip working interests equal to a pro rata one-third of Novo’s oil and gas assets to Northern Oil and Gas for $500 million. Novo is backed by EnCap Investments.
Earthstone will gain recent production of approximately 38,000 BOE/D (37% oil, 66% liquids) from 114 wells; $912 million proved developed PV-10 and PD reserves of approximately 73.9 million BOE; 21 gross operated wells waiting on completion; and approximately 11,300 net acres (99% operated, 57% working interest, 86% held by production) in the core of the Delaware Basin in Eddy County, New Mexico, and Culberson County, Texas
“In 2022, we materially advanced our consolidation strategy, closing three accretive acquisitions totaling ~$2.0 billion, including two significant northern Delaware Basin asset acquisitions,” said Robert J. Anderson, president and chief executive of Earthstone. “I am pleased that we are continuing to further our consolidation strategy with today’s announcement of the Novo acquisition as we further build our northern Delaware Basin asset base. With significant production volumes from the Novo acquisition, we expect Earthstone’s near-term production levels to surpass 135,000 BOE/D. The addition of approximately 200 high-quality, low-breakeven locations deepens our drilling inventory and with our flat rig count, extends our inventory life significantly to over a decade. We believe the benefits of continued consolidation are very compelling, and we strongly believe this is a value-creating transaction for Earthstone.”
Earthstone intends to maintain its five operated drilling rigs post-closing. Given that Novo’s inventory immediately competes for capital, Earthstone intends to move one of its two drilling rigs currently operating in the Midland Basin to the Delaware Basin to focus on the Novo assets. The net result will be Earthstone having four rigs operating in the Delaware Basin and one in the Midland Basin post-closing.
The Novo acquisition and revised development plan continues Earthstone’s evolution over the past several years, with its drilling inventory and development program now heavily weighted toward the northern Delaware Basin assets.
Last June, Earthstone purchased the New Mexico assets of Titus Oil & Gas, another private-equity-backed producer in the Permian, for $627 million in a cash and stock deal. Titus was managed by NGP Energy Capital. The deal netted Earthstone net average production of around 31,800 BOPD (65% oil, 83% liquids) from 44 gross (37 net) operated wells.
Earlier in 2022, Earthstone acquired the assets of privately held Bighorn Permian Resources LLC, located in the Midland Basin, in a cash/stock deal valued at $860 million. The deal added approximately 110,600 net acres (98% operated, 93% working interest) in the Midland Basin, primarily in Reagan and Irion counties in Texas, as well as additional average daily production of 42,400 BOED (25% oil, 57% liquids).
The effective date of the Novo acquisition is 1 May 2023, and closing is anticipated to occur in the third quarter of 2023.